Posts Tagged ‘judicial’

The foreclosure crisis is real, and it is not dissipating anytime soon. So why would a borrower advocate undermine a process meant to facilitate resolutions?

State and local governments seek creative ways to resolve the crisis. Some have looked to mediation and its rich history of providing a forum to disputing parties – including parties to foreclosures – to discuss alternatives to litigation. Courts (in judicial foreclosure states) and other government entities (in non-judicial foreclosure states) have created mediation programs to encourage borrowers and servicers to talk face-to-face about options other than foreclosure. These options include loan modifications as well as graceful exits.

Here at the Just Court ADR blog, we focus on just that – court-connected alternative dispute resolution. But occasionally, a dispute resolution system becomes so popular that it grows beyond the walls of the courthouse and replicates itself, like good yeast, into new shapes.

After months of protests from borrowers in The Aloha State, the state legislature’s Mortgage Foreclosure Task Force ushered Hawaii into the ranks of the nearly thirty other states that offer some type of mediation or conciliation program to address foreclosures. But unlike other states, Hawaii has created a program that offers mediation only outside the courts.

Many states offer both judicial (must be approved by the court) and non-judicial (only required to give notice of the sheriff’s sale) foreclosures, though most banks choose, or are required to use, a primary method. In Hawaii, where a foreclosure must be filed is dictated by a clause in the mortgage itself. Banks can include a “power of sale” clause that permits the banks to bypass the courts and sell the property directly if there is a deficiency. This takes about 3 months and about 80% of banks choose this method. If the bank does not include such a clause, it must conduct a judicial foreclosure, which can take up to 13 months. Though Hawaii’s two-year-old pilot foreclosure mediation program was connected directly to the court foreclosure process, Hawaii opted for the state-wide program to exist outside the courts entirely.

Gov. Neil Abercrombie signed into law Senate Bill 651, creating the Mortgage Foreclosure Dispute Resolution Program (the “Program”). The Program, which will begin October 1, is predicted to assist 2,000 of the 6,000 borrowers in foreclosure this year. It will be run by Hawaii’s Department of Commerce and Consumer Affairs Office of Administrative Hearings. Interestingly, despite the Program not being connected to the court foreclosure process, §667-C (b) requires the State Judiciary’s Center for Alternative Dispute Resolution to assist with everything from “performance oversight” of personnel to monthly status report generation.

Any borrower who has lived in the residential property for at least 200 days and whose bank files a non-judicial foreclosure with the Bureau of Conveyances may request to use the Program. The face-to-face negotiation, facilitated by a “neutral,” is then set up by the Consumer Affairs Office. The bank then must participate in the dispute resolution process, under threat of up to $1500 in sanctions. The foreclosure process is stayed until the parties reach resolution or come to no agreement.

Most strikingly, Senate Bill 651 allows borrowers to switch from a non-judicial to a judicial foreclosure, which borrower advocates usually see as a better forum. However, if borrowers switch, they lose the right to access the Mortgage Foreclosure Dispute Resolution Program. Instead, they may have access to the negatively-reviewed court pilot foreclosure mediation program available in some areas, which has resulted in fewer than 5 homes saved.

The hard choice for borrowers – either access to a more just foreclosure system in the courts or access to mediation – seems unfair, especially when the court administrators themselves are the ones warning that court foreclosure mediation would be messy. No one should have to choose between mediation’s benefits and justice.